Article written by Riya Thakur
Many people have been waiting for Bitcoin’s killer app. This is the one app that would provide a use case where it actually makes sense for the average person to use Bitcoin on a regular basis. It seems that we may have finally had the first such app in the form of BitHalo. This new innovation from David Zimbeck comes packed with a variety of new, exciting features for online commerce as a whole, and it doesn’t seem like the full impact of this new software will be felt until the full version is released. One of the main problems that Bitcoin has had up to this point is that some consumers are scared of irreversible transactions. It seems that BitHalo may have been able to solve that issue without any added costs.
Escrow without a Third Party
According to David Zimbeck the potential for BitHalo to have a massive impact revolves around its ability to perform escrow through the use of smart contracts. Most people who pay for things online today use some form of escrow because they want to have a bit of protection for situations where a merchant tries to rip them off. These escrow services, such as PayPal, Visa, and Mastercard, also come with fees that vary from country to country. For some merchants, the cost of using these systems for escrow isn’t even practical for their business model. In the case of BitHalo, there are no fees for the decentralized escrow service. BitHalo gets around the need for a fee by having the merchant and customer both send bitcoins into a smart escrow contract. The following is an example by David Zimbeck of how this could work:
Bob is looking for a used Nintendo 64 to buy on Craiglist, but the only one he can find is in another city. He agrees to buy the video game console from the seller, but he insists that BitHalo is used for escrow.
James, the seller of the Nintendo 64, decides that using BitHalo is fine with him. Bob and James each send 0.05 BTC into an escrow smart contract. Bob also needs to send another few dollars worth of BTC into the contract (see steps 6 and 7).
James ships the Nintendo 64 to Bob. It’s important to note here that James would lose his 0.05 BTC if he decided not to ship the Nintendo 64 at this point. This is the key to the escrow system. It’s basically a way for the merchant to put up some collateral before the buyer sends them any money. The seller only gets their original deposit back if both parties agree that the transaction was completed successfully.
Bob receives the video game console and checks to make sure that it works. Everything seems to checkout, so he sends a message to the smart contract claiming that he received the package in the mail. He has an incentive to actually go back to his computer and confirm that he received the game console because he will want to get back that extra few dollars deposit that he had to put down.
James also confirms the deal is done, and he receives both his original 0.05 BTC deposit and the 0.05 BTC from Bob. The extra few dollars worth of BTC is now also sent back to Bob.